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Q. I am 25. I have an endowment policy that started in November 2020 for which I should pay ₹77,000 as annual premium for 10 years. In addition, I have taken a pure term insurance policy in October 2021 for a period of 25 years. I want to surrender the endowment policy. Is it advisable to do so and if so, what are the pros and cons?

JOEL KIRUBHAKARAN

K. Nitya Kalyani answers. It is prudent that you have created protection through a term policy before thinking of giving up an endowment policy. Provided your term policy gives you sufficient coverage, let us see some pros and cons of stopping the endowment policy.

The pros and cons of abandoning the endowment policy now are as follows. I say abandon because you started the endowment policy barely a year ago and it would not have acquired a surrender value. If you stop paying premium now you will lose the premium already paid.

Going by the date of commencement of your policy, you have paid two annual premiums and, going by usual surrender rules, your policy will acquire a paid-up/ surrender value once three annual premiums are paid – however, this is a point you should check with your policy and insurer.

If you continue your policy until that date, you can either make it paid-up or surrender it, thus avoiding forfeiting entirely the premiums you have already paid.

If you make it a paid-up policy you don’t have to pay further premiums and the coverage will continue for the remaining term of the policy at a reduced sum assured and will complement your term policy coverage in your overall financial plan.

If you surrender it then you will get a refund of a pre-determined portion of the premium and coverage will cease. Remember that any new endowment policy in future will have a higher premium as a factor of your higher age. With advancing age and/ or health challenges you may even be denied a new policy.

You also need to assess on an absolute basis if the term policy sum assured is sufficient for you. You may want to review this periodically and take additional term cover. An important point to remember is that a term policy will lapse with the default of just one instalment premium.

Q. I am working in a private firm. I earn ₹20,000 per month. I have invested ₹50,000 in the share market, mostly in short-term investments of one or two month periods. Of the profit I receive from these investments, I donate 25% to charity, the transaction being done directly from my savings bank account. I would like to know the details of tax levied on my profit.

Balakeswaran

N. Sree Kanth answers: As the duration of the holding of shares is around one to two months, the profits on the sale of such shares (STT paid both at the time of sales and purchase) will be treated as short term capital gains. This short term capital gains is taxed at a special rate of 15% plus applicables cess.

Q. My company made donation of ₹1 lakh to Ram Janambhoomi Trust. My chartered accountant now told me that company is not eligible to get deduction u/s 80G. Is he correct if not kindly advise what is the correct position?

Eva Parkeek

N. Sree Kanth answers: Deduction on account of Section 80G of the Income Tax Act, 1961 can be claimed if the donee is a registered charitable trust having appropriate registration with the Income Tax Department for Section 80G deduction as on the date of such donation. Further ,you must possess the receipt so issued by the donee which would contain the name of the organisation, 80G certificate, PAN and address of the charitable organisation, the same is to be filled in the company’s ITR.

Further, the donation in excess of ₹2,000 is to be done in non-cash mode for availing the deduction under Section 80G of the Income Tax Act, 1961.

The quantum of the deduction will be allowed at 50% of the donated amount or 10% of the gross total income whichever is lesser under Section 80G(2)(b) of the Income Tax Act, 1961. You may check if all these conditions are satisfied prior to claiming the deduction.

Q. I had purchased a money-back policy from Kotak Mahindra Insurance Co. As per policy terms there are 4 payouts. I had received the first payout of ₹1.32 lakh. The insurer did deduct any TDS. Please clarify whether I have to show the payout as income and pay applicable tax?

V. Ayyappan

N. Sree Kanth answers: As per Section 10(10D) of the Income Tax Act, 1961, any sum received under a life insurance policy, including bonus is exempt. You are to note that this exemption is available only if the premium paid is lesser than 10% of the sum assured if the policy is taken on or after April 1, 2012 and in case policies dated between April 1, 2003 and March 31, 2012, the policy paid amount is to be lesser than 20% of the sum assured.

Insurance companies are required to deduct TDS only if the amount so paid is not covered under Section 10(10D) of the Income Tax Act, 1961 and such amount exceeds ₹1,00,000

(K. Nitya Kalyani is a business journalist specialising in insurance & corporate history and N. Sree Kanth is partner GSS Associates, Chartered Accountants, Chennai)

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